Peloton Partners

Building an optimal fee model has become a sore spot for advisers as they struggle to balance the needs of their clients with their own profitability. In a post Royal Commission world, financial advisers are fearing potentially significant changes amid forecasts that the industry may shrink and relatively quickly.

Despite the looming changes, we are confident that the advice industry will weather the storm and come out on top.   Where there is a service, there is value, and where there is value, it can be articulated, packaged, priced (including profit) and communicated effectively to clients and they will be happy to pay for it.  

Recognising the value of advice

Understanding your business is obviously critical, the good, bad and the ugly bits. However before advisers make any fee related choices, it is imperative that they also recognise their own value. Clients make an informed decision to be advised, which most often stems from an overwhelming need to feel safe financially. However, too often advisers underplay their value. In order to mend this, advisers should regularly reconnect their clients to the reason they sought advice in the first place, the intangible value…What really matters. This is so important for a two-way valued and valuable relationship to exist.

Fixed fee segment approach to building your fee

Advisers are naturally progressing towards an authentic fixed fee model, which can flex with the changing circumstances of clients, while still allowing advisers to earn a profit. Under this model, the fee is directly linked to the value of advice a business delivers. It is transparent, easy to understand and calculate, and is tailored to each client. Having a pricing model that can change as clients change maintains a perfect alignment between adviser and client. That philosophy again is simple. No two clients are identical in their needs and complexity, so neither should the fee be. The fixed fee model is divided into several categories based on the client’s size, and fees for services are charged accordingly. Below is a properly constructed detailed segmentation model which advisers are then able to build an appropriate fee and service package for a client based on their individual needs and circumstances.

Layered approach to fee building

As an alternative to a fixed fee per segment approach, some firms will elect a layered fee model for each client within their business. This approach sees advisers build up their fee layer by layer, starting with the base fee and arriving at a bespoke fee linked to CPI. Rather than coming in with ‘Here’s your $6,000 fee, that’s it’, advisers are building a fee and coming up with a natural approach of how they break the fee down into its constituent parts so that they take a client on the same journey. Out-of-office meetings, non-standard portfolio requirements and out-of-scope services being demanded or evolved should all be charged extra. Any additional or reduced service needs as the client’s lifestyle changes should be revisited each year, and accordingly clients who present with multiple complex tax structures should pay more. There is nothing wrong with charging more as long as all costs are transparent and made known to the client.

Service menu approach

The service menu approach is used to price clients at the top-end of the market. Under this model, advisers individually price each core service based on:

  • Time cost;
  • Value delivered;
  • Additional services offered;
  • Special needs or circumstances (e.g. external meetings with other professional advisers – legal etc) and;
  • Profit.

The adoption of a service menu approach requires firms to unpack their capabilities and analyse them. This model provides unrivalled transparency and fairness, meaning clients know exactly what they’re paying for and why. It also gives advisers the room they need to recognise their latent value. The evidence is clear that there is significant latent value sitting in the average firm across our industry and it is due to the inability of pricing models to price all the factors.


Advisers must urgently reconnect their clients with the reason why financial advice is so relevant for them. Being open, honest and fully convicted about what they do and what they need to charge, clients will pay a higher correct fee when the facts are presented to them and the value delivered is clear to them. While uncertainty abounds in the advice industry, nothing can impact the value of an advisory business if their relationship with their clients is established and maintained on a framework of transparency, authenticity and two-way honesty.

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